Micro, small industries can create 1 crore jobs in 5 years: Report

Even as the nation grapples with the challenge of economic and industrial revival from an unprecedented recession, the Centre for Sustainable Employment of Azim Premji University, along with Tata Institute of Social Sciences and FICCI, has come up with a timely a policy advocacy report on the eve of the Union budget.

The report titled ‘Creating Udyog Sahayak Enterprises Network’ (USENET) for Employment Generation and Scale-up in the MSME sector underlines that with proper policy and institutional back-up the micro and small industries (MSE) sector can create one crore new employment in the next five years.

This report authored by T Muralidharan, Bino Paul and Amit Basole was developed for the Working Group of Ministers (WGoM) on Employment and Skill Generation, convened by MoS Home Affairs of government of India in October 2020. It has been submitted to the Prime Minister along with other proposals developed by the group.

The report first presents a bird’s eye view of the micro and small enterprises (MSEs) sector. Out of a total of just over 63 million enterprises in the MSME sector, 62 million are informal micro and very small enterprises (MSEs). Of these, single worker firms (own-account) are 40 million, firms with 2 to 5 workers are 22 million and firms with more than five but less than 10 are estimated at 1 million. 107.6 million workers (97% of all employment in the MSME sector) are in this MSE segment. These MSEs, surprisingly, are more rural than urban — 51 per cent are in rural India. Women-owned firms accounted for 20 per cent of all enterprises, 16 per cent of all workers and 9 per cent of aggregate value-added.

As its main thrust, the report says, “We don’t need more micro-enterprises or more single-person firms. Instead, we need to scale up these existing MSEs.”

It shows this could be done by creating a support system which will make these MSEs go digital, grow in scale and increase their productivity. This will automatically create jobs. This is much more than the conventional formula for formalisation of the informal, the report says.

The main thrust of argument of the report is: India and the world are going digital. In the digital marketplace, the small can compete better and grow provided there is a support system for digital transformation of the MSEs. Such a support system is crucial because it is not possible for millions of MSE entrepreneurs to become digital experts spontaneously on their own.

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In concrete terms, the report proposes creation of 18 lakh Udyog Sahayak Enterprises (USEs) for scaling up the MSEs and to improve their ease of doing business which hitherto had focused on medium and large enterprises alone. USEs can roughly translate as entrepreneurship assistance ventures, which are much more than the incubators for start-ups. Each USE will be based on a trained educated youth and render services to the micro entrepreneur for a token payment, which would be reimbursed by the GoI.

The USEs are envisaged as vehicles with a large bouquet of services made available to the MSEs at their doorstep such as digitisation and formalisation, availing of government loans, subsidies or other benefits, ensuring compliance with local, regional, and national regulations, aiding partnership with digital marketing platforms and digital payment platforms, etc.

Each USE would progressively scale up around 50 MSEs and they can reach a target of 4.4 crore scaled-up MSEs in five years and 8.1 crore MSEs in 10 years. The report estimates that an additional 1 crore (10.3 million) jobs can be created over five years going up to nearly 6 crore (56.9 million) over 10 years.

These ambitious targets are not based on abstract hopes but on specific practical consideration like 12 per cent nominal rate of growth in gross value added (GVA) per worker. With such GVA growth, these jobs would represent an additional economic value of ₹2,16,000 crore at the end of five years and over 19 lakh crore at the end of 10 years. For such a support system, the total government expenditure is envisaged at only ₹6,000 crore per year for the next five years.

Chapter 1 of the report elaborates on why we need an out-of-the-box solution as above for employment growth. Chapter 2 gives an overview of the MSME sector at present. Chapter 3 explains the proposed Udhyog Sahayak Model. Chapters 4 & 5 sum up the benefits of such a support system and lessons to be learned from other developmental models.

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Currently, the government’s policies towards MSMEs are two-pronged: 1) Generation of millions of MSEs through the Mudra scheme; and 2) Credit guarantee by the government to banks for loan top-up to existing MSMEs, both viable as well as those which are financially distressed. Besides these, the government already has a framework for revival and rehabilitation of sick units, a policy for public procurement from MSMEs for PSUs and government public works. The government also runs skill development and capacity-building training programmes for MSMEs. The report unfortunately steers clear of any review of these existing programmes and says not much on whether their proposal for USENET could be integrated with the existing programmes or not and if so how.

Prof Amit Basole, one of the authors of the report and who had been the architect of many such reports brought out by the Azim Premji University, told The Federal that while it was true that the report didn’t directly deal with the question of synchronisation with existing schemes, the proposal for Udhyog Sahayaks would help the needy to avail these government schemes better. “Many potential micro entrepreneurs do not avail these liquidity or subsidy schemes mainly because of lack of knowledge about them and our proposal would improve the reach of these schemes,” he said.

Secondly, the experience hitherto of government intervention in favour of MSMEs as a single category shows a bias in favour of medium industries at the expense of micro and small units, especially when it comes to lending to MSMEs by banks. Last year, the micro, small and medium categories in MSMEs were redefined under which micro is defined as a unit with an investment of ₹1 crore as against the earlier limit of ₹25 lakh, small with an investment of up to ₹10 crore as against ₹5 crore and medium with an investment of up to ₹20 crore instead of ₹10 crore. This redefinition would also increase the bias in favour of relatively bigger ‘medium’ units at the expense of micro and small.

Though the report mainly stresses on the micro and small units for all practical purposes, probably for diplomatic reasons, it avoids any mention of this discrimination. However, while talking to The Federal, Amit Basole admitted that there is nothing much common between medium and micro units and some kind of earmarking of targets for the micro units is necessary. But in the longer run, scaling up proposal itself is mainly intended to beef up the tiny sector units.

Though it is in the shape of an abstract blueprint, there is much in this report that can be translated into policy interventions and there is no better occasion to do this than during the Union budget presentation. MSMEs can serve larger policy goals like backward area development and promoting entrepreneurship among SCs, STs, women and physically disabled persons. Amit Basole hopes that the finance minister would help in making the small really bigger and beautiful and the micro magnificent.